FinancialMirror.com
September 12 - 18, 2012
6 | COMMENT
The Importance of Being … Educated! EDITORIAL Oscar Wilde’s play, The Importance of Being Earnest, is a farcical comedy that deals with the trivialities of certain societal obligations, primarily marriage, and how people put up a façade to overcome these duties. Though one could argue that much has changed from Victorian times, at least as regards marriage and civil partnerships, the same cannot be said about education where we are still waiting for a revolution, from kindergarten level all the way up to university studies. Teaching has become a nuisance, a fact that has been attested by the moaning and groaning of some in this profession, especially this week when youngsters went back to school. These are very hard times, economically speaking, as the strained financial situation in households has forced many
children to abandon the “elitist” private schools and opt for the “safe” education in public schools. The desired target is to complete the year and secure good grades and an apolytirion, recognised by many universities that, too, have lowered their standards in order to accept more freshmen and secure higher incomes. However, the myth about the private schools and public ones has often been debunked, alas with neither side learning from this experience. The preferred public schools in Cyprus are about a handful, as are the sought-after private schools. In both cases, it is the very small number of dedicated and enthusiastic teachers that make the difference, not the name of the school, it’s reputation or even the outdated exam-based system. As parents make the extra effort to place their children in what they regard the ‘best school’, more and more of the burden is placed on the teachers, at least the ones who care.
They are regarded as surrogate parents by many pupils and high school teenagers, which is why proper guidance and career-counselling is so important nowadays, not just to students, even the teachers. Gone are the days when government officials used to say, “Cyprus needs, doctors, accountants and lawyers”, with no one daring to look after the future interests of the youngster, ie. the future generation of Cyprus. Instead, the new universities are promoting “oil and gas management” and new, unheard-of engineering courses that may or may not prove useful some day. A general sense of apathy has kicked in and education has been demoted to the market forces that decide who goes to which school, with a fall in student numbers in one supplemented by an increase in the new intake in others based simply on availability and not a school’s merit or success rate. Will this be yet another “same old, same old” school year?
Why Germany Should Lead or Leave Europe has been in a financial crisis since 2007. When the bankruptcy of Lehman Brothers endangered the credit of financial institutions, private credit was replaced by the credit of the state, revealing an unrecognized flaw in the euro. By transferring their right to print money to the European Central Bank (ECB), member countries exposed themselves to the risk of default, like Third World countries heavily indebted in a foreign currency. Commercial banks loaded with weaker countries’ government bonds became potentially insolvent. There is a parallel between the ongoing euro crisis and the international banking crisis of 1982. Back then, the International Monetary Fund saved the global banking system by lending just enough money to heavily indebted countries; default was avoided, but at the cost of a lasting depression. Latin America suffered a lost decade. Germany is playing the same role today as the IMF did then. The setting differs, but the effect is the same. Creditors are shifting the entire burden of adjustment on to the debtor countries and avoiding their own responsibility. The euro crisis is a complex mixture of banking and sovereign-debt problems, as well as divergences in economic performance that have given rise to balance-of-payments imbalances within the eurozone. The authorities did not understand the complexity of the crisis, let alone see a solution. So they tried to buy time. Usually, that works. Financial panics subside, and the authorities realize a profit on their intervention. But not this time, because the financial problems were combined with a process of
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political disintegration. When the European Union was created, it was the embodiment of an open society – a voluntary association of equal states that surrendered part of their sovereignty for the common good. The euro crisis is now turning the EU into something fundamentally different, dividing member countries into two classes – creditors and debtors – with the creditors in charge. As the strongest creditor country, Germany has emerged as the hegemon. Debtor countries pay substantial risk premiums for financing their government debt. This is reflected in their cost of financing in general. To make matters worse, the Bundesbank remains committed to an outmoded monetary doctrine rooted in Germany’s traumatic experience with inflation. As a result, it recognizes only inflation as a threat to stability, and ignores deflation, which is the real threat today. Moreover, Germany’s insistence on austerity for debtor countries can easily become counterproductive by increasing the debt ratio as GDP falls.
By GEORGE SOROS Chairman of Soros Fund Management and of the Open Society Institute
There is a real danger that a two-tier Europe will become permanent. Both human and financial resources will be attracted to the center, leaving the periphery permanently depressed. But the periphery is seething with discontent. Europe’s tragedy is not the result of an evil plot, but stems, rather, from a lack of coherent policies. As in ancient Greek tragedies, misconceptions and a sheer lack of understanding have had unintended but fateful consequences. Germany, as the largest creditor country, is in charge, but refuses to take on additional liabilities; as a result, every opportunity to resolve the crisis has been missed. The crisis spread from Greece to other deficit countries, eventually calling into question the euro’s very survival. Since a breakup of the euro would cause immense damage, Germany always does the minimum necessary to hold it together. Most recently, German Chancellor Angela Merkel has backed ECB President Mario Draghi, leaving Bundesbank President Jens Weidmann isolated. This will enable the ECB to put a lid on the borrowing costs of countries that submit to an austerity program under the supervision of the Troika (the IMF, the ECB, and the European Commission). That will save the euro, but it is also a step toward the permanent division of Europe into debtors and creditors. The debtors are bound to reject a two-tier Europe sooner or later. If the euro breaks up in disarray, the common market and the EU will be destroyed, leaving Europe worse off than it was when the effort to unite it began, owing to a legacy of mutual
mistrust and hostility. The later the breakup, the worse the ultimate outcome. So it is time to consider alternatives that until recently would have been inconceivable. In my judgment, the best course of action is to persuade Germany to choose between either leading the creation of a political union with genuine burden-sharing, or leaving the euro. Since all of the accumulated debt is denominated in euros, it makes all the difference who remains in charge of the monetary union. If Germany left, the euro would depreciate. Debtor countries would regain their competitiveness; their debt would diminish in real terms; and, with the ECB under their control, the threat of default would disappear and their borrowing costs would fall to levels comparable to that in the United Kingdom. The creditor countries, by contrast, would incur losses on their claims and investments denominated in euros and encounter stiffer competition at home from other eurozone members. The extent of creditor countries’ losses would depend on the extent of the depreciation, giving them an interest in keeping the depreciation within bounds. After initial dislocations, the eventual outcome would fulfill John Maynard Keynes’ dream of an international currency system in which both creditors and debtors share responsibility for maintaining stability. And Europe would avert the looming depression. The same result could be achieved, with less cost to Germany, if Germany chose to behave as a benevolent hegemon. That would mean implementing the proposed European banking union; establishing a more or less level playing field between debtor and creditor countries by establishing a Debt Reduction Fund, and eventually converting all debt into Eurobonds; and aiming at nominal GDP growth of up to 5%, so that Europe could grow its way out of excessive indebtedness. Whether Germany decides to lead or leave, either alternative would be better than creating an unsustainable two-tier Europe. © Project Syndicate, 2012. www.project-syndicate.org
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